Independent review warns Santa Barbara faces $21 million general fund shortfall by FY2030
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Summary
NHA Advisors told the Santa Barbara City Finance Committee that a baseline five‑year forecast projects expenses outpacing revenues, producing about a $21 million gap by fiscal 2030 unless assumptions or spending change. The review praised current forecasting practices and flagged salaries, benefits and property tax assumptions as key drivers.
Santa Barbara’s finance committee received an independent review on April 22 that projects the city’s general fund could face an approximately $21,000,000 shortfall by fiscal year 2030 under baseline assumptions.
The report, presented by Christian Sprunger, vice president of NHA Advisors, used the city’s fiscal 2025 midyear budget as a base and ran a five‑year dynamic model focused on operating revenues and expenditures. The review concluded the city’s current forecasting practices are sound but that “future budgetary stress and deficits” are likely unless revenues or expenses change.
NHA’s baseline assumes 2% annual growth in sales and use tax, 4.5% annual growth in property tax, 1.5% growth in transient occupancy tax, and conservative growth rates for service charges and interfund reimbursements. Under those assumptions, NHA projected expenditures would outpace revenues enough that the general fund balance is drawn down through fiscal 2029 and would be negative by fiscal 2030. “Based on our independent review and our findings, we think the city’s current forecasting practices being done by your finance department are sound,” Sprunger told the committee.
The report identified two primary drivers. Combined, salary and benefit costs make up nearly 60% of the general fund budget; salaries alone account for about 49% of expenditures, NHA said. The firm’s baseline includes an assumed average staffing vacancy rate around 23% over the forecast period; actual vacancy levels would materially affect expenditures. Property tax revenue is the single largest revenue line — about 29% of general fund revenue in the model — so different property tax growth assumptions change the outlook markedly.
NHA presented alternative scenarios to show sensitivity to key assumptions. If property tax growth were to follow the recent three‑year historical average of about 7.4% rather than the baseline 4.5%, the model shows a positive fund balance through fiscal 2030. Similarly, if salary growth averaged 4.5% instead of the baseline aggregate of about 5.27% over five years, the ending fund balance also improves materially. The firm also noted that if sales tax growth were 3% instead of 2% it would help but not fully close the gap under the baseline expense assumptions.
The report incorporated other model inputs and caveats: it excluded Measure C and reduced one‑time revenues and expenditures from the base year to avoid skewing results; it assumed roughly $4,000,000 in annual transfers out and approximately $1,300,000 in annual general‑fund capital improvement spending; and it used CalPERS’ publicly available pension outlook tool, which reflected a 9.5% return for fiscal 2024 and assumed a 6.8% target for fiscal 2025. Sprunger cautioned that lower CalPERS investment returns would increase pension costs later in the forecast.
Keith Demartini, the city’s finance director, thanked NHA for the independent validation of the finance department’s work and said the city will expand the engagement to review enterprise funds and revenue‑generation options. “I really appreciate and value the work that NHA Advisors have done to sort of validate the hard work that has been done,” Demartini said.
Committee members expressed appreciation for the review. Mayor Ross called the forecast “a cautionary tale” about future expenditures and said the city will need “very delicate steps” going forward. The committee received the report; there was no formal action or vote on the item.
NHA noted comparative reserve targets in nearby cities and guidance from standard bodies: the Government Finance Officers Association recommends about two months (roughly 16–17%) of general fund reserves as a starting point, and rating agencies such as S&P Global Ratings generally award top reserve scores at 15% or higher, though ratings use broader criteria. NHA also highlighted that local measures such as Measure I have strengthened the city’s position but are not alone sufficient to guarantee long‑term balance under the baseline assumptions.
Next steps noted during the meeting included continued work between city staff and NHA Advisors on enterprise funds and exploring additional revenue and financing options; the city’s finance department will present the fiscal year 2026–27 budget proposal to the full City Council later the same day.
